IDACORP, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020, compared with Q1 2019; balance-sheet figures are as of March 31, 2020, compared with December 31, 2019. IDACORP is a holding company whose principal subsidiary, Idaho Power, is a regulated electric utility serving southern Idaho and eastern Oregon. Interim statements are unaudited; the independent accountants performed a review, not an audit.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| IDACORP operating revenue | $291.0 million | $350.3 million | -16.9% |
| Operating income | $51.6 million | $58.1 million | -11.3% |
| Net income attributable to IDACORP | $37.5 million | $42.7 million | -12.2% |
| Diluted EPS | $0.74 | $0.84 | Down $0.10 |
| Operating cash flow | $33.8 million | $57.0 million | -40.7% |
| Capital additions | $73.6 million | $61.3 million | Up $12.2 million |
IDACORP’s operating margin was approximately 17.7%, versus 16.6% a year earlier; net margin was approximately 12.9%, versus 12.2%. Idaho Power reported net income of $36.8 million, down from $41.6 million.
- Revenue and earnings drivers: Electric utility revenue declined $59.3 million. Wholesale energy sales revenue fell $43.3 million as Q1 2019’s unusually high regional prices and sales volumes did not recur. Retail revenue declined $11.3 million, reflecting lower usage and PCA rate effects, partly offset by customer growth and higher fixed-cost adjustment (FCA) revenue. Transmission wheeling revenue fell $5.4 million.
- Expenses and generation: Fuel expense decreased $21.9 million, principally because coal generation fell 59%; purchased-power expense decreased $1.6 million. The power cost adjustment line was a $3.4 million credit in 2020 versus $26.2 million of expense in 2019. Other operations and maintenance rose $0.9 million.
- Cash flow and liquidity: IDACORP used $73.7 million in investing activities and $38.5 million in financing activities; cash declined $78.4 million to $138.9 million. Idaho Power ended the quarter with $32.4 million cash. At March 31, available revolving capacity was $100 million for IDACORP and $275.8 million for Idaho Power, with no commercial paper outstanding. Management reported approximately $200 million and $570 million of respective liquidity available as of April 24, including cash and credit facilities.
- Debt and capitalization: IDACORP long-term debt was $1.84 billion at quarter-end, up from $1.74 billion at year-end; current maturities were zero after the $100 million November 2020 bond maturity was presented as long-term debt. Covenant leverage ratios were 43% for IDACORP and 45% for Idaho Power, below the 65% limit. Idaho Power’s cash dividends to IDACORP were $34.0 million.
Material changes and management commentary
- Customer count grew 2.6% over the twelve months ended March 31, 2020, to 574,879. Retail sales volume nevertheless fell 2% in Q1, with lower heating demand in more moderate weather; heating degree-days were 8% below Q1 2019 and 10% below normal.
- Management attributed the earnings decline mainly to lower customer usage, weaker wholesale and transmission revenues, and lower 2019-comparable power-market benefits. Customer growth and $4.5 million of incremental FCA revenue helped offset lower usage.
- COVID-19 effects were emerging late in the quarter. Commercial usage per customer was 5% lower in March year over year; Idaho Power estimated the Q1 revenue effect from COVID-related commercial usage declines at less than $1 million. The company suspended residential and small-business disconnections and late fees and increased its customer-receivable allowance to $2.2 million from $1.4 million at year-end. Management could not yet estimate the pandemic’s ultimate financial impact.
- Idaho Power requested authority to defer incremental COVID-related costs and, in Idaho, unrecovered costs for possible future rate treatment. As of the report date, neither regulator had authorized the deferrals and none had been recorded.
Outlook, risks, and unusual items
- Management’s stated outlook remained consistent with its 2019 annual report. Expected capital expenditures were approximately $1.6 billion over 2020–2024; disclosed annual accrual-basis estimates were $300–$310 million for 2020 and $305–$315 million for 2021, excluding AFUDC.
- Idaho Power expected 2020 hydropower generation of 6.0–8.0 million MWh, compared with a 20-year annual average of 7.3 million MWh. It did not anticipate filing a general rate case in the next 12 months.
- In April 2020, after quarter-end, Idaho Power issued $230 million of 4.20% first mortgage bonds due 2048, generating approximately $260 million net proceeds. It intended to use part of the proceeds to address $100 million of bonds due November 2020 and stated the issuance added liquidity.
- Pending Idaho rate filings included a $58.7 million net PCA revenue increase for June 2020–May 2021 and a $0.7 million FCA increase for the same period. The IPUC had not yet ruled on the PCA application.
- Principal risks include prolonged COVID-19 effects on customer demand, collections, operations and capital markets; weather and hydrological variability; regulatory cost recovery; wildfire and environmental exposure; major construction and Hells Canyon relicensing costs; and financing, pension, and commodity-market risks.
- Idaho Power’s BCC reclamation guarantee was $58.3 million; the associated trust fund held $119.5 million. Management said the estimated fair value of the guarantee was minimal. Existing legal-contingency accruals were not material, though future accruals could be material in a period.
Investor facts to verify
- Whether lower wholesale sales, transmission revenues, and customer usage persist, and how seasonal demand affects full-year results.
- COVID-19’s impact on loads, receivable collections, bad-debt provisions, operating costs, and whether regulators permit requested cost deferrals.
- Regulatory decisions and customer-rate effects from the pending PCA and FCA filings, including the timing and recovery of costs.
- Execution, funding, and regulatory recovery of the planned capital program and major transmission and hydropower projects.
- Hydrological conditions, fuel and purchased-power costs, and the outcomes and costs of Hells Canyon and American Falls relicensing.
- Use of the April bond proceeds, refinancing of the November 2020 maturity, and continued compliance with credit and dividend covenants.